Detection and Prevention of Corporate Insolvency and Liquidation in Selected Businesses in Enugu and Anambra States of Nigeria

Abstract

Business Liquidation as the name implies has been one of the problems which every investor dreads and would always tries to avoid. This paper explores the existing literature that diagnostics of the companies' financial crisis in its first stage of development provides the company possibilities of overcoming the crisis further development, thus preventing insolvency and avoiding significant financial loss. Survey research methods were employed; and to establish the validity of the findings, four research hypotheses were formulated on the basis of the posed research questions and tested using statistical testing tools which include Pearson-product moment correlation, chi-square, simple regression and z-test. The research study established that businesses with inadequate working capital relative to their size of operations are more susceptible to business failure than those with adequate working capital. It recommends that an effective early warning information capable of alerting management of insolvency and financial crisis such as exceeding the limit of overdraft facility, inability to take advantage of discount available for bulk purchase, inability pay creditors on due date, exit of experienced employees etc. are found significant investors and management and/or organizations because it will help organizations to spot financial crisis and adopt early preventive measures and actions.